Zimbabwe's failing economy switches to foreign currency

Zimbabwe began officially trading in foreign currency today in an admission that its own has collapsed.

The change is expected to ease acute food shortages that have coincided with Zimbabwe’s record inflation and economic meltdown.

The central bank said it issued about 600 licences allowing stores, supermarkets, petrol importers and other businesses to sell goods for US dollars, South African rand and others.

With the collapse of the tourism industry as well as agricultural and manufactured exports, most of the foreign currency in the country comes from the millions of Zimbabweans working overseas and sending money home to relatives.

Much of it is already traded on the illegal black market. Central bank researchers said Zimbabweans spend millions of US dollars each month on shopping trips to neighbouring countries to buy the corn meal staple, cooking oil and other goods including spare car parts and electronics.

With foreign currency trade now legal, business managers said they expected goods to slowly return to supermarket shelves, though it would take time to find stocks and work out financial details.

Stores will be able to sell goods for both hard currency and the local Zimbabwe dollar. Only imported goods may be sold for hard currency.

The government and central bank have been struggling to contain Zimbabwe’s economic meltdown, with official inflation at 11 million per cent – the highest in the world – though independent financial institutions put real inflation closer 50 million per cent.

Zimbabwe had been self-sufficient in most household supplies until June 2007, when the government ordered a price freeze that forced businesses to sell products below cost. Now, toilet paper is being imported from Malaysia, toothpaste from Egypt and soap from Iran.

In August the central bank knocked 10 zeros off the Zimbabwe currency, but computerised accounting systems and automatic tellers have been unable to handle transactions in trillions of local dollars.

President Robert Mugabe, in power since independence from Britain in 1980, blames Western sanctions for the economic collapse. But critics point to his 2000 order that commercial farms be seized from whites. The often violent seizures disrupted the agriculture-based economy.

Western sanctions targeting individuals and companies supporting Mugabe’s regime were tightened after disputed elections in March and June that led to a power-sharing deal between Mugabe and his opponents signed September 15.

Mugabe’s ZANU-PF party and the opposition Movement for Democratic Change have so far failed to agree on the composition of a unity Cabinet.